How the economic machine works by Ray Dalio

I finally found time to sit down and watch Ray Dalio's famous 30 minutes How The Economic Machine Works video. It's totally different from the classic Econ 101 but it feels more practical and seems to explain the world economy better and in a simpler way.

Things I learned:

  • Credit/debt boosts growth first and depress it later. Credit encourages spending which boosts economy; however the need to pay back the debts reduced spending which depresses the economy.
  • Higher interest rate lowers the assets present value. Given the same future cash flow projection, higher interests rate means higher discounts, which means lower present value.
  • Stock market goes down when economy and profit growth is strong. This is counter-intuitive but it's part of the natural cycle.
  • Short-term cycle is 7-10 years and long-term cycle takes about 70-100 years.
  • Productivity matters in the long run. Credit matters in the short run.
  • When the economy becomes deflationary because of the contraction from debt payment, printing money converts credits to money. So printing money is inflationary. It works because as long inflation is higher than deflation, the debt burden is taken care of. The key is to balance the inflation and deflation.
  • The term "Lost decade" comes because of a long term readjustment takes 10 years for the market to go back to where it was. Even when the deleveraging is handled perfectly, it will still take 3 years for going down and another 7 to go back to where it was.
  • Three advices: don’t let debt increase faster than income, otherwise the debt will crush you; don’t let income rises faster than productivity growth, otherwise you will become less competitive; always improve the productivity because it is what matters in the long run.